SECTOR RISK ASSESSMENTS

STRENGTHS

WEAKNESSES

Weakened current account

Dependency on agricultural commodity prices

Sticky inflation

Bottlenecks in infrastructure

RISK ASSESSMENT

Economy has resurged from economic recession

After contracting in 2016, the Argentinian economy rebounded in 2017. Both household consumption and gross fixed investments increased strongly. On the supply side, growth has affected all sectors. The construction sector has been the largest contributor, up 9.7% year-over-year (GA), essentially supported by increasing public investment. Agriculture, transport, and communication and financial intermediation have also recorded strong results, reaching respective peaks of 4.9%, 4% and 4.4% during the same period.

The success of the ruling coalition (centre-right Cambiemos) in the midterm elections of October 2017 is expected to further boost business confidence in 2018, improving prospects for private investments, with GDP growth expected to pick up over the next year. It is worth noting, however, that inflation remains a concern: while it slowed, the target range of 12-17% established for 2017 by monetary authorities has not been reached. In response, the central bank has implemented a tightening monetary cycle to try to accelerate the disinflation process. The unemployment rate eased from a peak of 9.3% in the first quarter of 2016 to 8.7% in the second quarter of 2017. The recovery of the job market should gain further strength this year, supported by the further consolidation of activity growth.

Twin deficits still a point of concern

The government attained the primary fiscal target of 4.2% of GDP in 2017. However, this fiscal outcome was highly supported by resources obtained from tax amnesty – a one-time source of funds. This scenario is unlikely to repeat itself in 2018, especially given that the following target requires a tighter fiscal discipline (3.2% of GDP). Following its strong victory in the midterm elections, the government is now set to reduce the fiscal support that has contributed to the rebound in activity. Policymakers will now focus on fiscal reforms to narrow the budget deficit (containing social and pension spending growth). The government has defended the establishment of a cap to the real growth of provincial and federal primary expenditures to zero.

During the same period, the current account deficit has widened, driven by the increase in domestic demand. While imports grew by 12% year-on-year during the first ten months of 2017, exports rose by 0.7% in the same period. The larger trade and current deficits have been so far predominantly financed by debt issuance abroad, as foreign direct investment remains weak (roughly 1% of GDP). Hence, the rising external vulnerability together with the still high inflation may cause a further weakening of the Argentinean Peso. A sharp rise of the US dollar would certainly take a toll on climbing foreign currency debt.

A strong showing for Cambienos in midterm elections, though a majority in Congress was not reached

Argentina held midterm elections in October 2017, with the dispute that renewed one third of the Senate and half of the Lower House being seen as a preview of the 2019 presidential race. President Mauricio Macri of the centre-right Cambiemos coalition assured an impressive showing at the elections (including the five most populous cities). The ruling coalition raised its nationwide vote share from the 2015 presidential elections and obtained over 40% of the national vote in both legislative houses. In the Senate, it gained an additional nine seats, taking its total to 24 (out of 72), and in the Lower House it gained an additional 21 seats, taking its total to 107 (out of 257).

Although an absolute majority was not achieved, the outcome left the fragmented opposition in disarray and without any strong leader (former President Cristina Kirchner came in second only in the race for a Senate seat in Buenos Aires). The result has strengthened President Macri’s governability, which is critical to moving forward with his reform agenda, which consists of three pillars: reducing fiscal deficit, inflation and tax burden; reinvigorating job market and assuring a sustainable social security system; and institutional reforms (such as the electoral and judicial institutions). Despite the need to reach consensus with the opposition to pass the reforms, the government should benefit from a proposed schedule of gradual implementation, its increased political capital and a fragmented opposition. Indeed, the government has so far moved quickly, and sent its tax and labour reforms to Congress a few weeks after the legislative elections.

Last update: January 2018

Payment

The most common payment instruments in local commercial transactions are:

Cash (for low-value retail transactions)

Bank transfers

Cheques (ordinary cheques, deferred payment cheques or other types).

- In case of default, these cheques represent an executable legal document which facilitates a fast track legal proceeding.

For international commercial transactions, the most common payment instrument is Bank transfer via SWIFT. Since December 2015, restrictions on foreign exchange controls and fund transfers from Argentina have gradually been removed. At the time of writing, importers no longer require the approval of the Argentine Federal Tax Authority (AFIP) to make payments broad.

Debt collection

Amicable phase and out-of-court settlement:

Both of these options are always preferable to legal action. Negotiations are focused on the payment of the principal, plus any contractual default interest that may be added and accepted by the buyer. Argentinian regulations provide alternative dispute resolution methods, such as mediation, which is mandatory prior to the commencement of any judicial process aiming to reach an out-of-court agreement. The instrument to execute the agreement in this stage is a notarized acknowledgement of debt or a payment plan agreement. Such documents have to be signed by both the creditor and debtor, and must be notarized. At this stage, costs and fees incurred are borne by each respective party.

Legal proceedings:

Argentina is a federal republic (23 provinces and the Autonomous City of Buenos Aires (Federal District)), with two parallel judicial systems: federal courts (organised by the federal government) and provincial courts (organised by each province or federal district). The highest court in the country is the National Supreme Court of Justice. These courts have jurisdiction if:

I. The defendant resides in Argentina

II. The place of performance of any of the obligations is located in Argentina, or

III. Argentinian courts have been chosen as the applicable forum (subject to certain restrictions).

Regarding debtors abroad, Argentinian courts only have jurisdiction when debtors have assets in Argentina (in which case the insolvency proceedings will only involve such assets) or when their principal place of business is in Argentina.

The National Civil and Commercial Code of Procedure classifies proceedings into two types depending on their purpose: ordinary proceedings (juicio ordinario) and executory or fast-track (juicio ejecutivo). Other types of proceedings apply only to particular cases. Each province has its own code of procedure.

Ordinary proceedings usually last between one and four years. If applicable, an appeal may be filled for the Court of Appeals to hear the case.

Executory processes are simplified and prompt proceedings that mainly consist of claimants’ request for the execution of debtors’ assets to obtain payment of a debt. They apply when creditor has documents known as executor titles (titulos ejecutivos), such as public instruments, private instruments signed by the concerned party (debtor or guarantor)and legally acknowledged, bills of exchange, checks or credit invoices. Contrary to ordinary proceedings, it is not necessary to provide proof of the debt. The judgment is delivered between approximately six months and two years.

Costs: court tax (3% of the amount in dispute to be paid by claimants upon commencing the proceeding), lawyers’ fees. The prevailing party is entitled to recover its costs, including attorneys’ fees (subject to court approval).

Documents: All documents (original or notarised copies) submitted to the court must be (i) apostilled (for members of the 1961 Hague convention), and (ii) authenticated by the Argentine consulate with jurisdiction over the issuing country. All non-Spanish documents must be translated by a certified translator registered in Argentina.

Enforcement of a legal decision

For local judgments, final decisions are initially acquiesced to be enforceable. However, if a decision has been appealed, it can be partially enforceable in relation to the part of the judgment that is final. In principle, any of the debtor’s assets can be seized (including but not limited to property, trademarks, and accounts receivable from third parties and shares).

Insolvency proceedings

There are three insolvency proceedings:

(i) Out-of court reorganization procedure (acuerdo preventivo): a proceeding in which the debtor and a majority of unsecured creditors enter into a restructuring agreement. This agreement must be submitted by the debtor to an Argentinian court for it to become enforceable. In practice, out-of-court agreements provide a series of conditions that must be complied with, including a minimum threshold of consenting creditors.

(ii) Reorganization proceeding (concurso preventivo):

A reorganization proceeding can be initiated voluntarily by an individual or entity, who must submit proof of their inability to pay their debts. Debtors must file a petition to the court requesting relief under bankruptcy law. The court will appoint a trustee. All creditors must file evidence of their proof of claim with the trustee (verification de creditor). Debtors must submit a proposal for reorganization and must obtain creditors’ approval during an “exclusive period” of 90 days, with the possibility of an extension of 30 days based on the number of creditors. If the proposal is approved by the majority, the judge reviews the terms of the plan prior to approving it. Upon homologation by the court, the reorganization plan becomes effective to all unsecured creditors (even those who have not agreed to it). A special payment offer can only be proposed and approved for secured creditors. If the proposal is not approved by the required majority (51%), debtor bankruptcy may follow. The process generally takes between one and two years, depending on the volume and nature of debt being renegotiated and the size of the debtor.

(iii) Bankruptcy proceeding (quiebra):

This is initiated when a reorganization proceeding fails, either voluntarily (by the debtor) or involuntarily (by the debtor’s creditors’ request). The petitioner must show that the company is insolvent or that it has entered into a “suspension of payments” status. In case of an involuntary bankruptcy, after the petition has been filed with the relevant court and all necessary evidence is presented, the court will summon the debtor to provide an explanation of the reasons why payments of the obligations in favour of the petitioning creditor have not been made and to prove that the debtor is solvent. If the debtor is unable to do so, the court will declare the debtor bankrupt. Unlike reorganization, bankrupt debtors lose control of the administration of their assets. A trustee is appointed in order to preserve and administer the debtor’s property. As a result, all payments to creditors and debtor must be made through court. All claims and proceedings against the debtor are automatically stayed as from the date of the order that determines debtor’s bankruptcy. All creditors must submit their proof of claims for payment. Once the assets available and the amounts owned to each creditor are determined, the trustee liquidates the assets and proceeds with the distribution of repayment to creditors.